The European Central Bank (ECB) is expected to keep key interest rates unchanged this Thursday, marking its third consecutive monetary policy meeting, amid controlled inflation, with the institution’s president steering clear of comments on the French situation.
“We are currently in a good position and well prepared to face future shocks,” stated Christine Lagarde in mid-October during the annual meeting of the International Monetary Fund (IMF) in Washington.
This is the same sentiment anticipated by the markets. No surprises or change in direction. Almost all observers therefore expect the ECB to keep the deposit rate, which serves as a reference, at 2.0% as it has since July.
This renders the ECB meeting rather uneventful: a moment of monitoring instead of action, with cautious comments on growth and inflation, explains Michel Martinez, chief economist for Europe at Société Générale.
The Context
From an economic standpoint, the ECB can breathe a partial sigh of relief.
Despite the still heavy geopolitical climate with the ongoing Russian invasion of Ukraine, the ECB is currently operating in a relatively comfortable context economically, explains Felix Schmidt, economist at Berenberg.
After two years of successive interest rate cuts, the ECB is benefiting from inflation that has fallen from 10.6% in 2022, due to rising energy prices linked to the war in Ukraine, to values close to 2% in recent months, near the institution’s target.
The ECB’s scenario that predicts the indicator falling to 1.7% in 2026 remains valid, according to observers.
However, the outlook for economic growth is bleaker.
The figures expected for the eurozone on Thursday are expected to show almost zero GDP growth in the third quarter, undermined by tariff shocks that particularly affect Ireland, a country heavily exporting to the United States, and political uncertainty in France stifling demand and delaying investment decisions, according to Martinez.
In Germany, the stalled locomotive of the eurozone, the recovery plan voted by Friedrich Merz’s government will only impact growth and inflation starting in 2026, adds the economist.
Nevertheless, the ECB is counting on the resilience of the labor market and the strength of the services sector to sustain activity in the coming months.
For now, the central bank still forecasts growth of 1.2% in the eurozone in 2025, 1.0% in 2026, and 1.3% in 2027.
While the current time calls for patience, the key question remains future easing.
“The ECB’s rate-cutting cycle is not necessarily over,” warns Ulrike Kastens, chief economist at DWS.
The monetary status quo could last a few more months before a cut expected in March 2026, as foreseen by Martinez, when inflation should fall significantly below 2%, driven by the delayed drop in energy prices and the strength of the euro.
Attention will also turn to Paris.
Amid a balancing act between political maneuvering, budgetary uncertainty, and debt tensions, the spread between French and German debt yields, which serve as a reference, has reached its highest level in several years.
Lagarde is expected to avoid commenting on the individual case of France, believes Martinez, to avert any speculation of an intervention in the bond markets, despite heated debates in Paris.
But without completely avoiding press questions, the former French Economy Minister is expected to express confidence that policymakers will try to reduce uncertainty as much as possible and fulfill their budgetary commitments with Europe.
